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Review: The Second Machine Age Work Progress And Prosperity In A Time Of Brilliant Technologies

From time to time one reads a book that is important. The Second Machine Age Work Progress And
Prosperity In A Time of Brilliant Technologies by Erik Brynjolfsson and
Andrew McAfee is important. In the authors’ view, the confluence of falling
technology costs, increased computer processing power, cheap sensors and the quality
and ubiquity of networks, are ushering in a revolution equally as potent and
far-reaching as the Industrial Revolution.

Drawing parallels to the effect on civilization of the
Industrial evolution, and how long its subsequent impact has continued, they
see brilliant technologies in the early stage of changing about everything.
They provide a historical context on the growth in living standards, starting
with the domestication of the horse, development of agriculture, which led to
cities, afforded great armies and so on.
Things really didn’t advance much from there until the steam engine was
perfected, which created factories, mass transit, electrification and
essentially modern life.

They support the case that while innovation drives
productivity, it takes time for innovation to be adopted, widespread and then
subsequent advancements to leverage combinations of innovations.

The authors identify how those new combinations are occurring.
The new revolution starts with the difference in digital goods to traditional goods.
Digital goods can be endlessly copied at a cost that is nearly zero. And
falling costs combined with improving power is enabling machines to do things
now that researchers weren’t projecting to happen until far into the future –
e.g.-Watson beating anyone at chess; driverless cars and Siri.

And like the Industrial Revolution, there will be sharp
winners and losers. Just as motorized looms destroyed jobs in textiles; robots,
speech-activated call processing, and tax software replace factory and
warehouse workers, call center agents and accountants. Digital downloads replace
the CD and reduce musicians income. The authors are concerned that the job loss
affect may be longer lasting and more far reaching with this revolution than
the Industrial. In the Industrial Revolution, farmworkers displaced by tractors,
threshers and combines found work in factories. They make an interesting
argument that digitalization makes it possible for everyone to have the best. An
example they use is that if one bricklayer can lay X bricks per hour, that
doesn’t mean that someone won’t hire the second best bricklayer who can only
achieve .9X; perhaps at a slightly lower wage. In the world of digital goods,
in some fields everyone worldwide has access to the single best, eliminating
work for second and third place. Expanding that argument, in many fields one
only had access to providers in one’s area-town, city etc., but in the digital
realm one has instant global access. While they foresee a variety of new jobs
being created, they find it difficult to envision where an equivalent number of
jobs will be created. Indeed, they pin
some of the failure of total employment to return to pre-2008 levels on the
widespread adoption of technology reducing staffing requirements.

They cover the types of jobs they see at most and least risk
in the race against the machine. More importantly they cover skills and education
needed to compete in the future. I hesitate to call out any chapter as
particularly informative or intellectually challenging; they are all
impressive. The authors conclude with
policy recommendations. Part of the discussion made me nervous; I feared they
were heading for a policy recommendation of guaranteed income, or extremely
high tax rates on the successful. Instead, they rallied to a defense of work
and its importance [They provide a good example of two communities, one where
employment was high even if wages were low vs. same income levels from welfare-type
programs but low employment. The latter area was blighted].

They conclude with a series of policy recommendations and,
as they label it, wild idea s. One is a national mutual fund to make sure
everyone has, as one of my bosses used to say, a piece of the rock. Let me provide my twist to their national
mutual fund wild idea. The U.S. needs to invest the funds that come into Social
Security. Now, before someone’s hair catches on fire, I didn’t say “privatize”.
(I agree in some small way with
Presidential candidate Al Gore’s “lock box” hypothesis). Many states have
excellently run pension funds for state employees. (Some of those pension funds
may be underfunded, but that isn’t the managers’ fault). Leading examples
include Calpers in CA, Wisconsin Teachers and Texas Teachers. What I am talking
about is funding Social Security, not
privatizing it. It will take a very long term view – fifty or more years. If
two percent of the incoming funds into Social Security were invested in the
first year, and then increased by an additional two percent each subsequent year,
in fifty years the trust would be backed by actual assets.

As with any investment program, diversification would be
important. Our funds should go in to
timberland, oil and gas, stocks, bonds, apartment houses, raw land, shopping
centers and the like. At that point, every American would be a capitalist, and
an owner of the capital deployed in these new technologies.

This is an important book, highlighting topics that affect
business, government, education, labor, and personal skills development.

Highly recommended.

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About Me

Grew up in Memphis, worked my way through the local university, married my high school sweetheart - still married 42 years later. Played in a rock band, couldn't make a living, became a CPA. Raised two great sons. Moved all over the U.S. with different finance and management jobs. Now working with multiple start-ups as an investor and advisor.